Fabrinet
NYSE:FN
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
161.9
273.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Fabrinet
You don't have any saved screeners yet
Good day, ladies and gentlemen. Welcome to Fabrinet’s Financial Results Conference Call for the Second Quarter of Fiscal Year 2020. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today’s call is being recorded. I would now like to turn the call over to your host, Garo Toomajanian, Investor Relations.
Thank you, operator and good afternoon everyone. Thank you for joining us on today’s conference call to discuss Fabrinet’s financial and operating results for the second quarter and fiscal year 2020 which ended December 27, 2019.
With me on the call today are Seamus Grady, Chief Executive Officer, TS Ng, Chief Financial Officer, and Csaba Sverha, Vice President of Operations, Finance and CFO designate. This call is being webcast and a replay will be available on the Investors section of our website located at investor.fabrinet.com. Please refer to our website for important information, including our earnings press release and the investor presentation which include our GAAP to non-GAAP reconciliation.
I would like to remind you that today’s discussion will contain forward-looking statements about the future financial performance of the company. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from management’s current expectations. These statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise them in light of the new information or future events except as required by law. For a description of the risk factors that may affect our results, please refer to our recent SEC filings in particular the section captioned Risk Factors in our Form 10-Q filed on November 5, 2019. We will begin the call with the remarks from Seamus, TS and Csaba, followed by time for questions.
I would now like to turn the call over to Fabrinet’s CEO, Seamus Grady. Seamus?
Thank you, Garo and good afternoon everyone. We had a very strong second quarter with financial results that exceeded all of our guidance metrics including record quarterly revenue. This performance was driven by sequential growth in nearly all areas of our business. With end-market demand stabilizing, we expect to see continued year-over-year growth in the third quarter. Revenue in the second quarter was $426 million, up 7% from the first quarter and 6% from a year ago. Revenue upside largely fell to the bottom line, with non-GAAP net income of $1 per share which was also above the top end of our guidance range. Gross margin was 11.9% and we continue to anticipate non-GAAP gross margins to be within our target range of 12% to 12.5% for the full year.
Looking at our business by end markets, optical communications revenue was $322 million, up 6% from the first quarter. This represented 76% of total revenue consistent with the first quarter. Within optical communications, telecom revenue was $248 million, up 8% from the first quarter and 20% from a year ago and represented 77% of optical revenue. Our Berlin transfer program with Infinera again contributed to our telecom growth and the program was fully ramped at the end of the quarter as anticipated. Datacom revenue in the second quarter was $74 million, a slight increase from Q1, which was better than we had anticipated as demand trends for these products continued to stabilize. Datacom represented 23% of optical communications revenue. By technology, silicon photonics-based optical communications revenue increased by 7% from the first quarter to $82 million and represented 26% of optical communications revenue. Revenue from QSFP28 and QSFP56 transceivers was $48 million, up $3 million from the first quarter. By data rate, 100-gig programs represented 49% of optical communications revenue at $159 million and products rated at speeds of 400-gig and above continued to see rapid growth, up 31% from the first quarter to $49 million.
Looking at our non-optical communications business, revenue of $104 million was up from $97 million in the first quarter, which was also better than expected. We were pleased to see the demand for industrial lasers improve. And as a result, revenue for these products was also better than expected at $46 million compared to $41 million in the first quarter. We remain optimistic that over the longer term industrial laser manufacturers will increasingly leverage outsourcing to remain globally competitive and we believe we are uniquely positioned to be a leader in serving this market as the opportunity evolves.
Automotive revenue moderated to $21 million reflecting normal quarter-to-quarter variability from next generation automotive programs and which we expect to return to growth in the third quarter. Sensor revenue increased slightly to $3.9 million from $3.5 million. Finally, revenue generated from other non-optical applications grew 20% sequentially to $33 million mainly from Fabrinet West. During the quarter, we saw additional programs that had ramped production at Fabrinet West transfer to Bangkok, where we anticipate their volumes will continue to grow. This is another illustration of the success of our new product introduction model, which we will continue to leverage in Santa Clara and we are gearing up to extend to Israel in the coming months. At the same time, success of our program with Infinera demonstrates our ability to build complete network systems while offering economic advantages to our customers.
We believe there could be additional opportunities for us to vertically integrate from the component level up to the system level that can provide additional business to Fabrinet while simplifying the supply chain for our customers, and we have been actively pursuing these opportunities. And today, I’m pleased to announce that after the close of the second quarter, we were awarded a significant new project by Cisco, which will further build on our successful partnership. While it is still early days, we believe that if this program ramps as anticipated that Cisco could represent 10% of revenue or more for Fabrinet in fiscal 2021. We look forward to sharing more on this program as it progresses.
Finally, we also announced today that after more than a year of evaluating internal and external candidates, we are pleased to welcome Csaba Sverha as our new Chief Financial Officer, effective February 17 with TS stepping down from the role nearly 18 months after initially announcing his intention to retire. We are extremely grateful to TS for his contributions over the years to Fabrinet and for his commitment to ensuring a smooth transition. TS will be reporting to me as EVP, Special Projects, during this transition period. His dedication and positive attitude are a model for us all, and we wish him the best in his well-deserved retirement. Csaba has been Vice President of Operations, Finance, at Fabrinet for almost two years now, and I have had the pleasure of working directly with Csaba in the past. He displays all the characteristics that have had a meaningful hand in Fabrinet’s past success including integrity, collaboration and commitment to success. I am confident that Csaba will play a leading role in helping Fabrinet get to our next level of performance.
Before I turn the call over to TS and Csaba, I would like to address the Coronavirus outbreak that I’m sure you’re all concerned about. While our third quarter results often reflect a small seasonal downtick, guidance that we are providing for the third quarter also includes the anticipated impact from extended shutdowns in China due to the Coronavirus outbreak. Specifically, the Lunar New Year week-long shutdown at our Casix facility in Fuzhou, China, which manufactures custom optics components, has been extended from 1 week to 2 weeks ending February 10. In addition, some of our third-party suppliers in China are also impacted by shutdowns. This has a direct impact on our top and bottom line expectations and is considered in the guidance we are providing for the third quarter. News related to the coronavirus is rapidly evolving and our top priority is to keep our employees safe and we will continue to monitor the situation.
In summary, we are pleased with our stronger-than-expected performance in the second quarter, and we are excited about our new business activity. While we anticipate the coronavirus outbreak will result in a larger-than-normal sequential revenue decline in the third quarter, I believe we remain well positioned to extend our business success and market leadership as we look ahead.
Now, let me turn the call over to TS and Csaba to discuss the details of our second quarter performance and our outlook. TS?
Thank you for the kind words, Seamus and good afternoon, everyone. I would like to congratulate Csaba on his appointment and I’m committed to making sure his transition to the CFO position is smooth.
Now turning to our results, I will provide you more details on our financial results for the second quarter and then we will introduce Csaba to provide our guidance for the third quarter of fiscal year 2020. Total revenue in the second quarters of fiscal year 2020 was $426.2 million, above the upper end of our guidance range and a quarterly record. Non-GAAP net income was $1 per share, and was also above our guidance range even after foreign exchange headwinds of $1 million or approximately $0.03 per share.
Now turning to the details of our P&L, a reconciliation of GAAP to non-GAAP measures is included in our earnings, press release and investor presentation, which you can find on our website. Non-GAAP gross margin in the second quarter was 11.9%. We continue to expect gross margin to be within our target range for the year. Non-GAAP operating expense was $0.3 million in the second quarter. As a result, non-GAAP operating income was $38.5 million and non-GAAP operating margin was 9%. Tax in the quarter was $2 million and our normalized effective tax rate was less than 5%. We continue to expect our effective tax rate to be 5% to 6% for the full year. Non-GAAP net income was above our guidance range at $37.7 million in the second quarter, $1 per diluted share as I indicated earlier. On a GAAP basis, which includes share-based compensation expenses and amortization of debt issuance costs, net income for the second quarter was $31.2 million or $0.83 per diluted share, also above the high end of our guidance.
Turning to the balance sheet and cash flow statements, at the end of second quarter, cash, restricted cash and investments were $450.5 million, compared to $436.4 million at the end of the first quarter. Operating cash flow in the quarter was $50 million, and with CapEx of $9.1 million, free cash flow was $40.9 million in the second quarter. During the quarter, our working capital returned to neutral level as we began consuming the transferred inventory and collecting receivables. We did not repurchase any share during the quarter. $62.2 million remain in our share repurchase program. We will continue to evaluate market condition to opportunistically purchase share when possible.
Before I turn the call to Csaba to provide our third quarter guidance, I would like to take this opportunity to thank all our investors on the buy side and our sell side analysts for your support and all the work you have done over the years. I appreciate your professionalism and have enjoyed working with all of you. I wish you all nothing but the best.
I will now invite Csaba to give our FQ3 guidance.
Thank you, TS and good afternoon to those of you listening to our call. I am looking forward to stepping up as the next CFO at Fabrinet. TS has been a great mentor and my aim is to maintain that transparent and open level of dialog with investors as TS has had. I am looking forward to a good transition, including getting to know those of you attending OFC in March or other investor events in the coming months. I would now like to turn to our guidance for the third quarter of fiscal year 2020.
After the record quarterly revenue performance in Q2, we expect to maintain our year-over-year growth in the third quarter. We anticipate that third quarter revenue will moderate more than the usual seasonal impact as a result of the coronavirus outbreak in China. For the third quarter, we anticipate revenue to be between $410 million and $418 million. From an EPS perspective, we anticipate non-GAAP net income per share in the third quarter to be in the range of $0.92 to $0.95and GAAP net income per share of $0.75 to $0.78 based on approximately 37.9 million fully diluted shares outstanding.
In conclusion, we are pleased with our strong performance in the quarter. We are excited about our business momentum. And despite the small near-term impact of coronavirus outbreak, we remain optimistic that we can continue to build shareholder value over the longer term. Operator, we are now ready to open the call for questions.
Thank you. [Operator Instructions] First question comes from Alex Henderson of Needham. Your question, please.
Well, before I get into a question, TS, thank you very much for all the work you have put in with us and we really appreciate your professionalism and superb job you did there running the company’s finance operations?
Thank you, Alex.
And welcome to your replacement.
Thank you, Alex.
So, the first question I wanted to ask was obviously your hedge forward a quarter, I mean, the other side of the corona event was the falloff of tourism in Thailand and the very sharp correction in the baht that has occurred. Obviously, you were expecting some pressure from the strong baht before. Now that it’s corrected, are you changing any of your steps in terms of your hedging policies where you typically hedge one quarter fully, two quarters half, I think is the way you do it and then lesser in the back half? Will you lock in these lower rates or how do you think you will handle it?
Yes. Alex, let me try to answer that. Okay, we did not change our policy of hedging. For example, exactly what you say, 100% for the current quarter, then 50% for the out-quarter and 25% for the further out-quarter. The only thing we are looking at is to document it as a cash flow hedge. That’s what we did for the interest rate swap contracts. As of this quarter, all the interest rates are mark-to-market – interest rate swap mark-to-market, it’s all going through the OCI, other comprehensive income, less equity and then you roll out over time. So we are going to do the same thing for our cash flow hedge. Depending on PWC approval, we might get it done this quarter or maybe next quarter, but for sure next quarter, we get it done. So in that case, then all of the gain and loss, I think what we have advised before will go into the equity.
So just to be clear though I was really talking about the longer term implications of the exchange rate strength pressuring gross margins and now that pressure has been removed by the correction, do you plan to lock that in at all, so that you can – in case the corona issue goes away and we end up with rebound in the baht?
Yes. The baht has not really totally rebound yet. We see a short-term weakening, okay. Right now, the forecast is 30.5. We have been mark-to-market at 30.2 last quarter. So again, in the long run, we believe that baht will continue to be under pressure to be strengthened. So we think 12% is just to make sure that we properly hedge down and obviously the best hedge will be natural hedge. If I can sell in Thai baht, they will be perfect, but then the industry wouldn’t allow me to do that. So, yes, we are watching very closely. Again if Thai baht continues to strengthen, really nothing much we can do. At some point in time, you got to bite the bullet. And taking into the OCI will release the immediate pressure a little bit, but in the long run, if baht continues to strengthen, then you had to face the fact that it’s increased costs for and pressure on the gross margin.
So if I could ask one more question, the comments you made about Cisco, I am assuming that you are not including the acquisition of Acacia in those numbers. Otherwise, I think you would have been over 10% either way. So I assume this is just Cisco prior to that acquisition going to 10% and could you quantify that? Is that a doubling of your business with Cisco or is it 20% improvement in your business with Cisco? What does this project that you are talking about in terms of scale compared to what you are currently doing? Is it a significant increase, modest increase, some characterization?
Thanks, Alex. I think first of all, you are correct the numbers we talked about are Cisco alone. It doesn’t include the let’s say the Acacia business, which of course would be significant on its own. So looking at Cisco, I mean this is a significant – I would characterize it as a significant new business award for us. It’s a very large piece of business and it’s very important for us, because it’s right in – I suppose in our wheelhouse, in our sweet spot. We have talked maybe at some of the investor meetings and the road shows about the importance for us of penetrating some of the system companies from the component level up. We produce a lot of components that go into these products. So it seemed to make sense in order to simplify the supply chain for our customers while at the same time growing the business ourselves. It seems to make sense for us to go after this type of business. We have been fortunate with this one. It’s a vertical, what I would call a vertical up deal. So it’s from the component level up. Like I say, it simplifies and streamlines the supply chain for the customers. Yes, the 10% metric is for Cisco as a whole, which we hope – we expect when the deal with Acacia goes through will be a combination of Cisco and Acacia, but certainly, the business on its own is a significant piece of business.
So is it similar in size to the increase you have got off of the systems business from Infinera or is it smaller than that? I mean, can you give us some – is it bigger than a breadbox kind of comment, can you help us frame it?
I would say it’s in the similar kind of range. We don’t want to put a number on it right now, but it’s a significant piece of business. I mean, we win business all the time. We generally don’t callout specific programs. So the fact that we are calling it out means it’s a significant piece of business. So, it will be of a – I suppose of a similar scale.
Okay, one last question and then I will see the floor. Can you breakout your expectation for datacom and telecom in the upcoming guidance? Thanks.
In the upcoming guidance?
I think the telecom is down for a couple of reasons. The virus, coronavirus doesn’t help us, but again we see strength on the datacom. I mean, this quarter – past quarter FQ2, we expect to be down, but we kind of flat and up a little bit and we see the momentum will continue. So I think most of the datacom guys are outside China, lucky, okay. So, most of the China’s are multi-telecom. So we expect telecom to be down.
Great. Thank you very much.
Thanks, Alex.
Thank you. Our next question comes from Troy Jensen of Piper Sandler. Your line is open.
Hey, gentlemen. Congrats on the nice results and TS, good luck, we definitely all enjoyed working with you over the years and I wish you the best.
Thank you so much.
Gentlemen, could you guys dive in and you hit on the coronavirus. So I guess I am just curious if you could kind of quantify how much of an impact that is, just being curious, your thoughts too just on the whole China supply chain and how resilient is it right now and what are your expectations for the virus going forward so to speak?
So the coronavirus outbreak itself, the first week of the coronavirus outbreak coincided with the Lunar New Year, which meant that many of the facilities, many of our own facilities in China and Casix in Fuzhou was already shutdown as were many of our component suppliers. And the impact – it’s not a huge impact. If I have to put a number on it, I would say, it’s in the $8 million to $10 million range for the quarter and it’s largely driven by the fact that government mandated shutdowns for an additional week. For example, our own operation in the Casix operation in Fuzhou, we had plans to be back on February 3 and that got pushed out because of the government mandated shutdown to February 10. So, we lose a week’s production. And several of our suppliers are in the same situation. Like I said, we estimate the impact of this extended shutdown to be about $8 million to $10 million for the quarter. So in effect, our guidance would have been roughly flat sequentially, which would have been in line with or maybe little better than a seasonal Q3 for us, let’s say fiscal Q3, calendar Q1, which will be seasonally down for us. So without this coronavirus impact, we would have been kind of flat to slightly up, I would say, so to answer your direct question, about an $8 million to $10 million impact.
And just thoughts on just like just the recent couple of days or week or so, have you gotten more concerned about – or has there been more conversations and just your thoughts on how resilient the supply chain is right now for you guys? How much good visibility do you have on supply?
We think it’s pretty resilient. And we think of course none of us know when we could find ourselves here a quarter from now saying we were too conservative and over estimated the impact or we could find ourselves saying we weren’t conservative enough and we underestimated the impact. It’s really very difficult to say. I think it’s – our working assumption is that all our own operation as well as the suppliers who were affected that we all get back to work a week from today on February 10. If something happens this week, if that changes, then the impact could be greater. Similarly, so I think it’s – we are not – I mean, obviously our primary concern is for the health and welfare of our employees and we are taking great precautions to make sure everyone is well both in our operation in Casix, but also in our large campus in Thailand. And as you can imagine, we have a lot of visitors who come through. It’s a 10,000 person campus. We have a lot of people who come through there. So we are taking great precautions to make sure everyone is safe and well. So that’s our first concern. But nevertheless, we think the supply chain is actually quite resilient. And if businesses get back into operation a week from today, we should be okay. But we’re going to keep a very, very close eye on it for sure, as everyone is.
Yes, understood. And this one last question, I will cede the floor. Just your comments on industrial laser strength, curious to know, is that existing programs getting better, or is that some of these new design wins you guys been talking?
It’s a combination of both, actually. We continue to penetrate that market and win business there with a number of companies. But I would say the strength in the quarter was mostly with existing customers, existing programs.
Understood. TS, hope to see it down in San Diego, but congrats guys
Yes, okay, for sure. Thank you.
Thank you, Troy.
Thank you. Our next question comes from Samik Chatterjee of JPMorgan. Your question please.
Hi, thanks for taking my question. I appreciate your comments about telecom and the supply side there. I just wanted to understand how you’re thinking about the demand side as well, because even before the coronavirus impact I think we saw a couple of industry players kind of sign the warning signs on 5G network deployment in the different geographies, including China. So I just wanted to understand beyond the supply constraints, how you’re thinking about demand if there is a slowdown, how long would it take in the supply chain to show up in your demand level or orders? And so any insights on that would be helpful.
Yes. So the demand – sorry, the telecom demand that TS talked about was more focused on the demand side than the supply side. So we are seeing some softness. But for us, it’s – nothing I would say greater than the normal seasonal softness that we would see in this quarter. We do – and again, we don’t claim to represent the industry or have any great insights, but certainly from what we see, we don’t see any huge change other than what we would normally see as a seasonal slowdown – a little bit of a slowdown this quarter. The other thing is, as many of our customers have not announced yet, we don’t want to be – seem to be speaking for them. But I would say – like I say, I don’t – we don’t believe there’s anything other than the normal seasonal slowdown. TS, what do you think?
I think well say – really we cannot beyond one or two quarters. But for the coming quarter, essentially we – exactly what Seamus said.
Okay, got it. And if I could just follow-up on the 400-gig, the growth that you had, which is pretty strong, 31% growth as you’re looking through the end of the year, right now, the growth is off a small base. How are you thinking about – do you think that growth rate is sustainable on the 400-gig products, 400-gig and above products?
Yes. We grouped together 400-gig and above. At some point, we may get a bit more granular with that, but right now we see that continuing to be quite strong. We don’t guide beyond one quarter, but we do so we do see demand for that 400-gig and above continuing to certainly outpace the growth of the rest of the business. It’s growing quite strongly for us.
Great, thank you.
Thank you, Samik.
[Operator Instructions] Our next question comes from the line of John Marchetti of Stifel. Your question, please.
Hey, guys. This is Scott on for John. Congrats on a great quarter and thank you, TS, again. On the systems opportunity you discussed, could you maybe touch on how that affects margins going forward?
Yes, we are not going to breakout margins by customer program. It is not something we have done and we don’t plan to start doing that now. I am sure our customers would not be too happy with this if we started to break that out. I would say it’s obviously a piece of business we’re very happy about. We are very proud to be expanding our partnership and our relationship with Cisco. But we are not really prepared to talk about the margins on that program.
So, not necessarily on the Cisco one specifically, but as you move forward and look for more opportunities of that kind, could you give some color on how that overall should impact margins?
Yes, I think as we look at expanding into the system business and we have a couple of I would say significant wins under our belts, we’re – I suppose we’re in the fortunate position of being able to be somewhat selective about which particular piece of the business we go after in that space. So we’re not chasing everybody, we’re not chasing every – we’re not chasing every customer, we’re not chasing every product or every opportunity with every customer. We are being selective. And really for us where it makes a lot of sense is where we are already making some of the optical component – the optical components that are already in the bomb for those systems. That allows us to be, first of all, very competitive for our customers. And also we can build the products in a way that simplifies the supply chain for our customers. They can just seal with one – one-stop shop, one supplier rather than having to deal with several suppliers. It also – it helps us to help the customer to eliminate the margin stack that they have to deal with if their – if they have a stacked supply chain. So we’re really flattening the supply chain in a way that allows us to make a respectable margin that we’re happy with and allows the customer to save a lot of money because they eliminate a lot of the margin stack that they have to deal with if they use multiple suppliers. So that’s really the, if you’d like, secret sauce, is that we eliminate the margin stack for the customers, but we do it in a way that we are able to produce the products at a price and at a margin that is acceptable to us.
That’s great. Thank you so much.
No problem.
Thank you.
Thank you. Our next question comes from Alex Henderson of Needham. Your line is open.
I was not going to let you get off with only a couple of questions tonight. Wanted to just talk a little bit about the Infinera business coming in, obviously, that’s a fairly new program. Have you – you say it’s fully in the numbers now, has there been any production issues or any other issues with that in the move during the fourth quarter calendar that we should be aware of? Did it perturbed the numbers as a result of startup or ramp-up costs that will fall out or any additional commentary around that would be helpful?
I would say we are fully ramped in the sense that all of the products are transferred. As you can appreciate, Alex, it’s not a simple thing to transfer an entire factory from Berlin to Bangkok. We are fully ramped in the sense that all the products are transferred, we’re fully up to speed, the yields are at an acceptable level, we have capacity installed. As it regards the demand, let’s say the intra-quarter demand variability that might exist there, I know Infinera announced within the next few days, I think next week, so we’ll really let them talk about what the demand profile looks like. It’s not really our place to talk about that. But all I would say is we’re very happy with how the program has gone. We’re very happy with the relationship with Infinera. We’re very excited to be making sure we’re building the new programs and the right programs for Infinera, and the transfer has just gone very, very well.
So there was no production issue in the fourth quarter calendar that impacted the gross margins, bringing it down a little bit or anything of that sort that we should be aware of?
No, the gross margin – the 11.9% was really a mix, an overall mix. And again the difference between 12.0% and 11.9%, it’s not very significant. But it was really just an overall product mix. Certainly nothing related to – delays or anything like that with Infinera alone.
Going back to the Cisco announcement, when do you think that that might start to matriculate into the numbers?
I think it’s early to say. I think we’ve shown – I suppose from our past track record, we’re able to go very fast and transfer these programs very quickly. But at the end of the day, the pace is essentially set by the customer in these cases. We have to go at a pace that the customer is comfortable with. So it’s a very recent win. It’s actually – we won the business since we closed the quarter. So we’re just really in the throes right now of putting the timelines together and agreeing with the customer on the transfer plan. So it’s really too early to say, Alex, when the revenue might hit, but I...
Is that going into the new facility, as opposed to in the Pinehurst?
Yes.
And any commentary about utilization rates and how you are doing on all those programs?
Yes, I think we did break out. A couple of quarters ago, we used to break out the degree to which Chonburi was occupied and spoken for. We stopped doing that because it’s not a meaningful – it’s not really meaningful indicator of anything actually, because we’ve been so successful as expanding the space in Pinehurst. So we don’t really talk about that metric anymore again, because it’s not really meaningful. We do continue – obviously, this new business win will be all destined for the Chonburi operation and we continue to find more space and expand the manufacturing footprint in Pinehurst. So we need to have – we need to know concerns about our ability to expand and grow the business. And then of course we’re always ready to pull the trigger on the next building in Chonburi and we have room for another probably five buildings of the same. Again each building, it’s about 0.5 million square feet and would have revenue capacity of about $500 million. So we have ample room to expand in Chonburi.
On the Casix delays in terms of re-ramping, pretty sure Casix is one of your highest margin business, to the extent that that gets delayed, that probably has a bigger impact, not just on the revenues but also on the margin mix I would think. Is it reasonable to think that that’s pressuring the gross margins a little bit in the – over the very short term and then you’ll get that back?
Yes, a little bit. That’s a fair way to think about it, Alex. Obviously component – optical components, given the nature of these products, they’re more like jewels than electronic products. Certainly the margin profile is quite different. It’s higher margin products than let’s say a typical EMS-type product. So yes, the margin impact is higher on every dollar of revenue. We don’t get out of Casix. But we haven’t seen – again you’re right, as well as more of a delay than a cancellation, if you like. If you lose capacity, a week or 10 days of capacity, it’s hard to get that back. But it was then pushed to the next quarter.
So, one more question if I could, see, Fabrinet West’s success of ramping other products up to $33 million, up 20%. It’s pretty strong results. Is that production that’s anticipating a move of the line and therefore we ought to expect a fall-off in the other or with the line already be moved, and we should see that continuing to ramp as we start to get it into full production in Thailand, and therefore the other line will accelerate? What’s the shape of that curve?
So the $30 million or $33 million of other, that will be a combination. That’s not just Fabrinet West. It will be combination of Fabrinet West, but also programs that were maybe previously ramped in Fabrinet West that are now ramping in Thailand. As we ramp business in Fabrinet West and then transfer to Bangkok, yes, we will transfer our production, and we should start to see a nice uptick in the other. And as that other category grows, it may get re-categorized when it becomes more meaningful into one of the other areas. But as that business grows in Bangkok, we work hard to backfill if you like with new business and new customers into Fabrinet West.
Right. So the production already moved to Thailand and it is already ramping. It’s just been moved from Fabrinet West?
Correct, correct.
Okay. I thought you were saying it was going to be moved in the third quarter.
What the combination does, there is a constant flow I would say, through Fabrinet West. So at any point in time, you will have a mix of business that is being ramped in Fabrinet West and being transferred, and has already transferred. And that for us is a measure of success is – success for us in Fabrinet West is, if we transfer everything and end up having to backfill Fabrinet West with new business, it is a bit counterintuitive for our business, but we really feel Fabrinet West as it is an entry to Bangkok. And success means that the revenue is a bit volatile in Fabrinet West because it means we are being successful at convincing customers to transfer an entire program to Bangkok.
Okay, I got it. Thanks.
Thanks, Alex.
Thank you. Our next question comes from Fahad Najam of Cowen. Your line is open.
Thank you for taking my question. First, I wanted to thank TS for all your support over the years. It was a pleasure working with you. Enjoy your retirement.
Thank you, Fahad.
My question goes to on diversification. If I get the Cisco announcement, it’s going to be another 10% customer along with momentum. Can you speak to the revenue diversification? It seems like your top three, four customers may account for greater than 50% of your total revenue, if my math is right. So just help me understand if I am thinking about it the right way.
Yes, so we – historically we have had one – the last few years, we have had one 10% customer. Again, of course we report the customers on a full year basis when we look back. If we are successful with our current plans, we go from having one 10% customer to three 10% customers. So there is always a trade-off, Fahad, of course between being over concentrated, but at the same time, you do need sufficient scale with any one customer to serve the customer correctly and property. So we are very happy with I suppose the trajectory we are on, the way we have been able to penetrate some new markets for us, new opportunity for us and really show the customer value – the value that we can bring in simplifying their supply chain. So we see it as a real win-win and we will have three – certainly three 10% customers as we – hopefully as we look back in FY ‘21.
And these are all quality customers. I am not worried about their credit before there whatever.
Yes. They are high quality customers. So we feel...
Can you remind us the number of silicon photonics customers you guys have? I think that number is growing, just trying to get a sense of the diversification beyond the top three customers?
Yes, we have 5 or 6 silicon photonics customers. Some of them will be big household names, but there is also some smaller startup type silicon photonics customers in there as well, so 5 or 6 in total.
Yes, appreciate the answer. Thank you very much and congratulations again, TS.
Thank you.
Thank you, Fahad.
Thank you. At this time, I would like to turn the call back over to CEO, Seamus Grady, for closing remarks. Sir?
Thank you. So, thank you for joining our call today everyone. We are pleased to again exceed our guidance for revenue and EPS in the second quarter and we are well positioned to deliver another strong performance in Q3. We are looking forward to seeing those of you who will be attending our Q&A session at OFC and at other events, until then goodbye. Thank you.
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.